Behind China’s Corn Export Hokey-Pokey

While it can be discouraging for U.S. producers to watch China reject GMO corn, it’s important to keep in mind the silver lining. That’s what Mike North of First Capitol Ag tells the U.S. Farm Report Market Roundtable.

"The reality is that if you watch what’s been happening as they’ve canceled them, they’ve gone into other Asian destinations," North explains. "Those destinations wouldn’t necessarily have grabbed for it, but they’d already towed the load all the way to China, and now they have this opportunity to buy corn at a very competitive rate."

He continues: "Now if China comes back and says later, ‘Hey, we really do want that corn now," well, now we start pulling more from the export part of the balance sheet than what we would have initially intended, and we’re already at 1 billion bushels of the 1.4 that we’re talking about. So as we go forward in the marketing year—which we still have nine months left in—we very well have an opportunity to maybe breach that number and push exports just a little bit higher because of what’s going on right now."

Additionally, it’s important to think about the cargo rejections in context, says Chris Barron, market consultant.

"As farmers we can watch that, give us a little flash in the pan in the market and kind of look at the bigger picture and understand based on what’s going on."

The same is true for corn use in ethanol, which is enjoying a favorable ride at the moment.

"If you look at the profitability curve, the spot margins for an ethanol plant are astounding right now," North says. "Depending on what numbers you look at, anywhere from $1 to $2 per bushel in terms of return to a plant, and that’s a great place to find yourself. But as you look further out, those numbers fall off pretty fast. So if we maintain that curve going forward, that speaks well for the ethanol volumes that’ll be running through the plant, however, there’s this discussion in the backdrop about the Renewable Fuel Standard."

Barron advises producers to carefully monitor their marketing plans heading into the New Year.

"We start moving into the spring, and a lot of us as producers start looking at the quality of that corn and a lot of this stuff is harvested at higher moistures, it was wetter," Barron notes. "You start noticing, boy, we’d better start moving some of this stuff. We all start doing some of this stuff at the same time, there’s going to be some big basis hits on things. So I think we’re really going to need to be paying attention and be on the ball getting that stuff moved."

Click the play button below to watch the complete U.S. Farm Report Market Roundtable discussion: